Know Before You Owe: It’s closing time

Last month, as we tested another round of the initial mortgage disclosure, we mentioned that we’d be shifting our focus in the coming months. Today, we begin testing a new form in Des Moines, Iowa: the closing disclosure.

Currently, when you go to the settlement or “closing” of a loan, you receive a stack of papers that may include a range of contract documents, federal disclosures, and state disclosures. Although we don’t control most of this stack of paper, we’re working to combine the two key federal disclosures into a single form that’s easier to understand, just as we did before with the initial disclosure. And just like before, we’re asking you to help make it better.

We’ve come up with two prototype designs and we want your feedback on them. Using the same online tool we’ve been using since May, tell us which you prefer and why.

Before you dig in, here’s a little background. Right now, once you decide to move forward with the purchase or refinancing of a home, there are two key disclosures you receive either at or shortly before closing: the Truth in Lending Disclosure and the HUD-1 Settlement Statement . They include final details, closing costs, and other conditions and requirements of the loan.

We are in the process of replacing these two different forms with one disclosure that is easier to use, consistent with our Congressional mandate in the Dodd-Frank Act. We’re also working to fold in some other federal disclosures that are currently or would be provided on other pieces of paper.

We want to give consumers a clear understanding of the final loan terms and costs in one place. This will make it easier to ensure that you receive the loan product you applied for at the cost you agreed to. And we want to give lenders and settlement agents a well-organized form to make compliance easier.

Would this form help you, as a consumer, understand final loan terms and costs? Can you understand them well enough to compare them to term and cost disclosures you received several weeks before?

If you are a settlement agent or lender, could you clearly and easily explain the form to your customers?

How can we improve the form? Are there ways to make things clearer?

What are the challenges to implementing this form?

This is our first round of draft designs for the closing disclosure. We will make further revisions over the next few months. If you participated in this process for the initial disclosure, you have seen how your feedback is helping us create a form that works for the people who will use it. If this is the first time you’re weighing in, we think you will be excited to learn how your input improves our work.

As for the rest of the stack of paper that you currently receive at closing, we expect in coming months to talk with industry and other regulators to see if there are ways to simplify and streamline those documents as well. It’s all a part of making it easier to Know Before You Owe.

Your feedback over the past few months has helped us develop an initial disclosure that works for the people who have to use it. Now, please help us to create a closing disclosure that can work just as well alongside it. Weigh in today.